SPEC Inspecs Group Plc

10 September 2024

INSPECS Group plc

("INSPECS", "the Company" or "the Group")

Interim Results

Delivering operational efficiencies

INSPECS Group plc, a leading designer, manufacturer, and distributor of eyewear (sunglasses, optical frames, lenses and low vision products) presents its unaudited interim results for the six months ended 30 June 2024.

Financial review:

Operational review:

1       Constant currency exchange rates: figures at constant currency exchange rates have been calculated using the average exchange rates in effect for the relevant comparative period (H1 2023).

2         Refer to table 'Underlying EBITDA and Underlying PAT'

3         Refer to note 5

4         Refer to note 8

Richard Peck, CEO of INSPECS, said:

"The Group has made steady progress during the period, with significantly improved gross profit margins delivered across all divisions and strong cash generation. We have achieved sustainable cost savings through the ongoing implementation of operational efficiencies, particularly in the US, and we will continue to undertake further initiatives during the second half.

"We have made good progress against our global distribution strategic pillar, evidenced through the agreement of new distribution and the expansion of existing partnerships with global retailers, as well as achieving revenue growth in travel retail. Despite ongoing challenges relating to inflationary pressures and the market readjusting after competitor acquisitions, the optical market remains resilient.

"Trading in the second half to date has exceeded the prior year and our order books are ahead of last year as of the end of August. It is expected that the reduction in net debt will accelerate in the second half due to reduced capital expenditure, following a period of increased investment in the new Vietnam manufacturing facility. Whilst we remain cautious in relation to market conditions and focused on the delivery of our cost saving initiatives and planned shipments in Q4, the Board is confident in meeting market expectations for the full year."

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About INSPECS Group plc

INSPECS is a leading provider of eyewear solutions to the global eyewear market. The Group produces a broad range of eyewear frames, low vision aids and lenses, covering optical, sunglasses and safety, which are either "Branded" (under licence or under the Group's own proprietary brands), or "OEM" (unbranded or private label on behalf of retail customers).

INSPECS is building a global eyewear business through its vertically integrated business model. Its continued growth is underpinned by six core pillars: increasing the penetration of its own-brand portfolio, increasing distribution, growing its travel retail markets, maximising group synergies, expanding its manufacturing capacity and scaling the research and development department as it develops new and innovative eyewear products. 

The Group has operations across the globe: with offices and subsidiaries in the UK, Europe, the US and China (including Hong Kong, Macau and Shenzhen), and manufacturing facilities in Vietnam, China, the UK and Italy.

INSPECS customers are global optical and non-optical retailers, global distributors and independent opticians. Its distribution network covers over 80 countries and reaches approximately 75,000 points of sale.

More information is available at: www.INSPECS.com

CHIEF EXECUTIVE REVIEW

As previously communicated, revenue and EBITDA in the first half of 2024 were expected to be lower due to the one-off elevated level of sales in Q1 2023. The Group experienced a more normalised trading pattern in the period, the impact of which was compounded by the widely reported global inflationary pressures as well as the market readjusting to recent competitor acquisitions. As a result, the Group recorded revenue of £103.0m (H1 2023: £111.2m) and an Underlying EBITDA of £10.1m compared to £12.1m for the same period in 2023. Pleasingly, gross profit margin increased to 52.4% (H1 2023: 51.4%) as a result of improved operational efficiency and sales mix, with our continued focus on delivering operational efficiencies also reducing operating expenses by £1.9m to £50.7m from £52.6m.

Frames and Optics

Revenue within our Frames and Optics distribution business decreased 8.5% to £94.2m (H1 2023: £102.9m) however, gross profit margin improved by 150 basis points to 51.8% with increasing synergies being realised.

During the period the Group successfully launched a key brand into all stores of a major global retailer and agreed distribution with two major retail chains in the United States for additional brands from Q4 2024. The Group also agreed distribution with a leading optical retailer in Canada for a further major brand in all stores from Q4 2024.

There is also an opportunity to increase penetration globally though the worldwide distribution network that we are establishing. Notably our push into worldwide travel retail outlets is proving very successful as revenue from travel retail has increased 45% in the period and we will continue to expand our distribution into new global outlets in the second half.

The Group also successfully integrated Inspecs USA's sales and warehousing facilities during the period, streamlining operations within this region.

Manufacturing

Revenue from the manufacturing business for H1 2024 was £9.0m, compared to £9.9m in H1 2023 but we expect to see increased activity in the second half with order books at 31 August 2024 exceeding those at 31 August 2023. Gross profit margin increased by 400 basis points to 46.2% in H1 due to increased sales of patented concept frames and reduced material costs.

Construction of our new manufacturing facility in Vietnam has been completed on time and on budget, and the fit-out of the facility is currently ongoing. Once manufacturing fully commences, this will increase the manufacturing capacity of the Group to circa 12 million units per year in the medium term and enhance the operational efficiency of existing production.

Lenses

Revenue from our lens manufacturing business increased 21.6% to £2.5m (H1 2023: £2.1m) and gross profit margin increased by 220 basis points to 42.3%. The new leadership team is well embedded, and growth has been delivered in both key accounts and independent sales channels, with a significant new key account signed and further negotiations ongoing.

Research and development

Significant progress continues to be made in relation to our smart eyewear range, alongside the development of additional innovative eyewear channels, resulting in further consultancy revenues during H1 2024. A new low vision aid will also be launched in the second half of 2024.

ESG

During the period, we have launched several impactful community projects, including a food bank initiative in Nuremberg, Germany aiming to tackle food waste and food insecurity in the local area, underscoring our commitment to making a meaningful difference in the local communities in which we operate. We also continued to refine our climate approach, holding several Steering Group meetings to enhance our management and reporting of climate-related risks and opportunities. Looking ahead, we remain dedicated to driving progress across our Group ESG Roadmap and continuously improving our strategies to address climate-related challenges and opportunities.

Outlook

As of 31 August, trading in the second half to date has exceeded the prior year and our order books are also 7% ahead. Whilst we remain cautious in relation to market conditions and we remain focused on delivery of our cost saving initiatives, we are confident in delivering on market expectations for the full year.

I would like to thank all our teams across the globe for their continuing hard work and dedication in achieving our long-term goal of developing INSPECS Group into one of the world's leading eyewear companies.

Richard Peck

10 September 2024

FINANCIAL REVIEW

Revenue

Revenue was £103.0m in the half, down from £111.2m in H1 2023, a decrease of 7.3%. On a constant exchange rate basis revenues decreased 5.2% to £105.4m from £111.2m (H1 2023).

Gross Profit Margin

The Group's gross profit margin increased to 52.4% in H1 2024 from 51.4% in H1 2023, driven by margin improvement in each of the reporting segments. The Group continues to actively manage its gross profit margin and is targeting further efficiencies.

Operating Profit

The Group's operating profit decreased 27.2% to £3.3m (H1 2023: £4.6m).

Administrative expenses

Administrative costs decreased by £1.5m to £47.8m in H1 2024 from £49.3m in H1 2023, driven by the Group's focus on operational efficiency.

Underlying EBITDA

The Group's Underlying EBITDA decreased from £12.1m in H1 2023 to £10.1m in H1 2024. Underlying EBITDA margin decreased from 10.8% in H1 2023 to 9.8% in H1 2024.

Finance Expenses

Net finance costs have risen marginally from £2.0m in H1 2023 to £2.1m in H1 2024 reflecting the increase in interest rates versus the prior period. Net finance costs include £0.1m (H1 2023: £0.1m) relating to the amortisation of capitalised loan arrangement fees.

Depreciation and amortisation

The decrease in depreciation is split between owned and right of use assets.

Profit Before Tax

Profit before tax for the period was £1.3m (H1 2023: £3.8m), after a lower £0.2m gain on exchange relating to borrowings, compared to a gain of £1.2m in H1 2023.

Tax charge

The tax charge for the period of £2.4m (H1 2023: £1.7m) is driven by a current tax charge of £2.2m (H1 2023: £2.2m) and a deferred tax charge of £0.1m (H1 2023: £0.5m credit). The credit in H1 2023 is driven by the unwinding of deferred tax balances arising on acquisitions.

Cash Generation

The Group generated cash from operations of £12.0m (H1 2023: £11.5m) reflecting continual improvements in working capital efficiency of the Group.

Net Debt

The Group has again delivered strong cash generation in the first half and as a result, net debt (excluding leases) reduced by £4.4m to £19.8m as at 30 June 2024 (31 December 2023: £24.2m). During the period, the Group invested £1.8m on the purchase of tangible and intangible owned assets, including fit out costs for the new Vietnam facility, and paid a further £1.9m of deferred and contingent consideration relating to the EGO and BoDe acquisitions. The reduction in net debt of the group is expected to accelerate in future periods as cash flows used in investing activities returns to usual levels.

Financing

The Group finances its operation through the following borrowings and facilities.

Leverage (using debt to equity ratio)

The Group's leverage position is shown below:

The Group remains within its banking covenants and forecasts that, subject to market conditions, it will continue to remain within banking covenants for the length of the arrangement.

Inventory

Our revenue to inventory ratio has remained consistent compared to 30 June 2023.

Current asset ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations, or those due within one year. This has remained consistent on the comparative period.

Quick ratio

The quick ratio is an indicator of a company's short-term liquidity position and measures a company's ability to meet its short-term obligations with its most liquid assets. This has remained consistent on the comparative period.

Net working capital

Net working capital has reduced following a reduction of the inventory base and improved receivables collection.

Earnings per Share

The Group's Basic Underlying EPS for the 6 months to 30 June 2024 was 2.86p compared to 4.53p for the 6 months to 30 June 2023.

Dividend

The Group does not currently intend to pay a dividend in relation to 2024. The Board continues to review its dividend policy on a regular basis.

Underlying EBITDA and Underlying PAT

The below table shows how Underlying EBITDA and Underlying PAT are calculated:

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION    

As at 30 June 2024